A stricter lending market for investment properties moved towards reality with an announcement from Barclays that it will no longer offer buy-to-let mortgages to investors who plan to buy via limited companies, either privately owned or partnerships. Mortgages will also no longer be offered for investment properties that include more than one unit.
The stricter lending rules will come into effect from June 26th. Barclays says that these categories of buy-to-let mortgages for investment properties account for a very small percentage of lending anyway. But the decision clearly indicates a more restrictive lending landscape for buy-to-let investors as banks look for ways to reduce their exposure to the economic fallout of the Covid-19 pandemic.
Holding investment properties through a limited company has risen in popularity over the past few years. The approach has become more attractive after the government started to phase out mortgage interest tax relief and other tax allowances that private landlords have benefitted from. Mortgage interest can still be set against rental income if a buy-to-let property is held by a limited company.
However, lenders are concerned that rental income generated by multi-unit properties due to particularly students moving out of the accommodation category. There are rumours many students who had prepaid rent with the intention of remaining in properties over the summer months are also now trying to claim it back. Small property rental businesses are generally considered at risk over the coming period with rental demand expected to remain significantly lower for an extended period of time.
Landlords have already been obliged to place a freeze on evictions for non-payment of rent. That has been balanced out by a freeze on mortgage repayments but both measures are now due to expire at the end of June. Buy-to-let landlords will have to restart mortgage payments on properties. But many may no longer have tenants, or tenants that are able to make their payments.
Andrew Montlake, commenting on behalf of the mortgage broker Coreco Group, is quoted in The Times as commenting:
“Lenders are looking at streamlining and prioritising their business as they have to deal with the challenges of working from home and with a flood of mortgage payment holiday requests.”
Prior to the onset of the Covid-19 pandemic and subsequent lockdown, the buy-to-let mortgage market had become extremely competitive. Interest rates on offer to landlords were at historic lows as lenders battled it out for business.
Barclays’ decision may mark the beginning of a very changed environment. However, it remains to be seen what the approach is of smaller, more specialist mortgage lenders is to the changed economic conditions.
